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4 Basic Reasons for the Rise of Logistics

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Logistics has reached its zenith proportion in both industry and commerce. Professor Schneider Lewis M., in his article, “Milestones on the Road of Physical Distribution” Published in Readings in Business Logistics edited by Mr. Mc Conaughu—Richard Irwin Inc., 1969-pp 51-63, identified four basic reasons for the rise of logistics.

These are:

1. Changes in Customer Demand Patterns:

Increased affluence has shifted customers towards more services and has also contributed to major geographical changes in population concentrations and to a general proliferation of products and product types offered by marketers to consumers.

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These changes encouraged migration of population to metropolitan cities in search of higher paying jobs. This expanded the effective size of metropolitan regions.

The result has been an increase in retail outlets. This resulted in marketing of products through a number of departmental stores, rather than relying on only one. This reflected in complexity of functions and additional costs. The combined effect of competition and consumer affluence is the fundamental reason for proliferation of product lines.

It is observed by experts that as more and more product line variety is needed to satisfy the growing range of customer tasks and requirements, stock levels in both field and factory rise inevitably.

For the vast majority of production facilities that have not yet installed computer aided manufacturing systems, the cost of assembly line changes and small batch productions escalate in tandem.

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It is equally true that replacing one product with three that generate same level sales would increase inventories by 60 per cent. This upward pressure on costs suggests the need for more careful management.

2. Economic Pressures on Industry:

Two economic forces are instrumental in encouraging the movement towards a re-organisation for business logistics.

First logistics costs are recognised take significant proportion of total costs.

Second reduced profit margins encouraged the firms to look for more efficiently organisational patterns.

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Fragmentation of logistic activities among various departments of an organisation tended to mask the total cost of logistic activities. Further, fragmentation of activities under different heads led to conflicts on the organsation.

According to Professor Heskett J.L. the physical distribution cost at macro-economic level, accounted for 14.9 percent of the US GNP in 1960. In 1962, Mr. Peter Drucker the Management Guru in his article published in Fortune said that almost 50 cents out of energy dollar that the consumer spends on goods goes to the activities that occur after the goods are made.

In India total logistic costs are 10 percent of the GNP of which 40 percent is due to transportation above. The major reasons for substantially high logistics costs can be attributed to rise in labour transport and inventory costs.

3. Technological Changes and the Application of Quantitative Techniques to Business Problems:

Technological innovation is not only unique to logistics but it has increased complexity of logistic problems leading to the need for careful and cautions management.

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The technological innovation has led to the problems namely:

(1) Contraction of product life- cycle

(2) Decrease in the cost of value addition and simultaneous rise costs of materials and distribution.

(3) Greater proliferation of logistical choices and

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(4) Growth of scientific management techniques and computer technology side by side with logistics system components.

4. Development in Military Logistics:

Military is the rich source of experience where business world is to learn a lot. Military logistics problems are mammoth and enormous. By solving these problems military reinforces faith of business community in logistics.

For instance in the early 1991 during gulf war the US and allied forces were faced with the problem of moving half a million people and over a half a million tons of material and supply by air.

That is 12000 kms and 2.3 million tons of equipment by sea in a matter of months. It was logistics that made this mission difficult possible. In India each year we have lost good many people, animals, crops became of poor logistics. In the year 2008 the Bihar flood cannot be forgotten.